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The relationship between finance and growth in China

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  • Chen, K.C.
  • Wu, Lifan
  • Wen, Jian
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    Abstract

    We examine the non-linearity between financial development and economic growth in China. Specifically, we use a threshold model to investigate whether provinces with high level of personal income can exploit financial development efficiently. Empirical analysis, using cross-provincial data from 1978 to 2010, shows that finance has a strong positive influence on growth in high-income provinces, but a strong negative impact on growth in low-income provinces. The results are robust to an alternative financial development measure. Furthermore, we find that China's state sector, notorious for inefficiency and low productivity, accounts for a large proportion of industrial output in low-income provinces, causing bank loans to have a negative impact on economic growth.

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    Bibliographic Info

    Article provided by Elsevier in its journal Global Finance Journal.

    Volume (Year): 24 (2013)
    Issue (Month): 1 ()
    Pages: 1-12

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    Handle: RePEc:eee:glofin:v:24:y:2013:i:1:p:1-12

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    Web page: http://www.elsevier.com/locate/inca/620162

    Related research

    Keywords: China; Financial development; Economic growth; Threshold regression;

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